Dawood struck in the sixth and 68th minutes in the Group F match and led a one-man attack superbly as a historic pre- quarterfinal berth beckons the Lions of Mesopotamia in their second U-17 World Cup appearance.
Chile conceded an own goal through substitute Diego Valencia in the 81st minute.
With today's loss, Chile, the last edition hosts, are virtually out of the tournament.
Mexico have one point at third place while Chile, without a point so far, have conceded six goals. Chile and Mexico play against each other on October 14.
The scoreline would have matched England's 4-0 thrashing of Chile but their goalkeeper Rodrigo Cancino denied Dawood a deserving hat-trick from a penalty in the second-half stoppage time.
The Asian champions did not give their Latin American rivals any chance and enjoyed a 59 per cent possession.
Dawood made it three goals from two matches, same as Jadon Sancho of England, when he curled in a free-kick to the bottom right corner of the net in the 68th minute.
He almost struck a hat-trick from the left side of the box but missed the target in the 74th minute as there was no stopping Iraq who became the Asian U-16 champions in Goa last year.
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